Pandora Heads Into Battle

Pandora’s (NYSE:P) future hangs in the balance as the company’s Chairman and Chief Executive Officer Joseph Kennedy prepares to ask the House Judiciary Committee on Wednesday to support Internet Radio Fairness Act, a bill that proposes to make changes to the music licensing system.

What are Pandora’s Complaints?

In the months preceding the hearing, Pandora led an aggressive campaign aimed at putting Internet radio services on the same royalty-setting standard as cable and satellite radio stations. This, Pandora has said, will lower the royalties the company pays to stream music online. As record producer Jimmy Jam told Bloomberg, the bill would lower the rates paid by Pandora by 85 percent.

“The current rate-setting structure is a clear case of discrimination against the Internet and innovative services,” read Kennedy’s written testimony. “This lack of a level playing field is fundamentally unfair and indefensible.” What is unfair, according to Kennedy, is that more than 50 percent of Pandora’s revenue will go towards royalty payments this year, while cable and satellite radio providers will pay 15 percent and 7.5 percent of their revenue, respectively. Pandora expects to pay $250 million to SoundExchange, a non-profit performance rights organization that collects statutory royalties from streaming music providers.

Internet radio providers pay different rates because the royalty rates for most other uses of copyrighted sound recordings fall under section 801B of the Copyright Act, while standards set for streaming radio providers like Pandora come as a result of the 1998 Digital Millennium Copyright Act, which made Internet radio an exception to the original act…